A COMPARISON OF THE FISCAL CONVERGENCE EXPERIENCE IN THE CFA FRANC ZONE AND THE EMU

The aim of the paper is to present arguments for implementing fiscal policy constraints in monetary union member countries and to compare experience in this area in two non-European monetary unions in Africa and the EMU. The author offers a brief review of arguments - for and against fiscal convergence in a monetary union - presented in the literature on the subject. This empirical and theoretical review leads to the conclusion that, under some circumstances, there is a great need for fiscal policy coordination in monetary union member countries. The key question is how fiscal convergence should be designed and how multilateral surveillance should be enforced. To answer this question, the CFA Franc Zone experience with fiscal convergence criteria was compared with that of the EMU. The author notes that some fiscal convergence criteria are unique and specific for these groups of countries but some other criteria are common, regardless of the features of individual economies. Therefore fiscal coordination should be union-specific to avoid any disadvantages highlighted in theoretical analyses and resulting from decreased fiscal policy flexibility.